Bonus and Commission

Is Bonus Discretionary and Commission a Contractual Entitlement?

 

A lot of employers in Hong Kong will pay bonuses to their employees. While most of the employment contracts will describe bonus payment as “entirely at the Company’s discretion”, and some employers rely on such clause to refuse or avoid payment of bonus, is it true that all bonuses are discretionary?

 

In Wong Huey Lam v Colgate Palmolive (Hong Kong) Limited [2002] HKCU 296, the bonus scheme was expressly described as discretionary. However, there were provisions which stated that bonus would be awarded with regard to the company’s operating target and the employee’s performance, and the employer had a right to cancel the bonus if the financial health of the company was in jeopardy. The Court held that while the bonus scheme involved certain discretionary elements, the discretion could only be properly exercised with regard to clearly objective targets. The bonus scheme is thus a formulaic incentive payment rather than a discretionary bonus. As a result, the employer was liable to pay pro-rata bonus to the employee.

 

On the other hand, commission, which is normally considered a contractual entitlement, could be discretionary in nature. For example, in Chung Wo Sang Future v Tai Lin Radio Service Ltd [2003] HKCU 801, although there was a system of commission, by examining the contract and relevant evidence (e.g. the use of words ‘may enjoy’ payment of commission), the court held that the commission in question was discretionary in nature and should not be considered when calculating outstanding annual leave pay, holiday pay, etc. In Qantex Capital Markets Ltd v Dimitri Philippides [2019] HKCU 226, the court held that each case must be decided on its own facts, and each decision depends on the court’s construction of the language used in the relevant contract, construed in the context of the case and after considering any disputed factual evidence.

 

If you are uncertain whether you are entitled to a bonus, commission or other remuneration, please feel free to call or WhatsApp Mr. Lam at 6977 6708 for legal advice appointment.

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